KUALA LUMPUR: Malaysia is not on austerity mode but is instead adopting smart spending, said Malaysia's Finance Minister Lim Guan Eng on Monday (Oct 8).
“All we are doing here is pulling back excesses of the past. What we are calling for is not austerity, but smarter spending," said Lim at his luncheon address at the Khazanah Megatrends Forum 2018.
“Let me stress here that Malaysia is not in austerity mode; we want to see economic growth progressing."
Lim however noted that the government will spend when necessary, in key priority areas.
“If there are priority areas that require spending, we would be more than happy to spend - especially when it leads to long-term sustainable growth that improves the well-being of the people,” he said.
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The minister added that Malaysia was not going to just pursue fiscal consolidation, as a too-fast consolidation might affect growth.
“We need to pursue economic diversification. Fiscal consolidation is a means towards fiscal sustainability. But sustainability requires a reasonable level of economic growth,” he said.
In the short term, Lim said, Malaysia needs to consolidate its fiscal position in order to address the excesses of the previous government which led to RM1.09 trillion (US$240 billion) worth of government debts and liabilities, or 80.3 per cent of the gross domestic product (GDP).
He also said he believed the corporate sector has a prominent role in helping to keep the economy going and has the capacity on its balance sheets to invest and pursue growth because Malaysia's corporate debt, at least among the listed companies, is merely 20 per cent of GDP.
Despite the current global headwinds, Lim assured that Malaysia would not run twin deficits, thanks to its robust economic fundamentals and current account, which is likely to remain in surplus for this year.
He said Malaysia had a current account surplus of three per cent of GDP last year while in the first half of this year, the balance stood at 2.7 per cent of GDP, or RM18.9 billion.
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Lim noted there have been concerns about the weak second-quarter current account surplus of only RM3.9 billion and the low August 2018 trade balance of RM1.6 billion.
These low surpluses, in large part, were caused by the consumption tax holiday period after the abolishment of the Goods and Services Tax, which in turn encouraged imports, he said.
However, the reintroduction of the Sales and Services Tax last month, import growth would moderate and this would improve the balances in the short term, he added.
Lim also said in order to maintain the current account balance, Malaysia's exports need to remain competitive and the country must re-calibrate public finances towards a path of long-term fiscal sustainability.
He added that the government’s efforts at fiscal consolidation are focused on prudence - removing the excesses of the past, while building a strong foundation for government finances to pursue a smart and responsible fiscal policy moving forward.